Lead Velocity Rate: The North Star Metric for Sales Leaders in 2024
As a sales leader, you know that driving consistent revenue growth is the name of the game. But with so many metrics to track – from win rates to pipeline coverage to sales cycle length – it can be hard to know what to focus on.
What if there was one metric to rule them all – a singular number that could predict your future revenues with uncanny accuracy?
Enter lead velocity rate (LVR) – the most important metric that every sales leader must put at the center of their dashboard and strategy in 2024 and beyond.
What is Lead Velocity Rate?
Lead velocity rate measures the month-over-month growth (or decline) in qualified leads. In technical terms, LVR is calculated as:
(Qualified leads in current month – Qualified leads in prior month) / Qualified leads in prior month
For example, if you had 100 qualified leads in April and 110 in May, your lead velocity rate would be:
(110 – 100) / 100 = 10%
This means your lead volume grew by 10% from April to May. To calculate your average LVR over a quarter or year, you‘d average the month-over-month percentages.
Why is Lead Velocity Rate So Powerful?
What makes LVR stand out from the dozens of other sales metrics you could track? In a word: predictability.
Unlike lagging indicators that measure past results, LVR is the most accurate leading indicator of where your revenue is heading in the coming months. If you‘re growing lead velocity at a steady clip, you can forecast future revenue with a high degree of confidence.
Here‘s why LVR is so predictive:
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Qualified leads are the starting point of revenue. A lead isn‘t counted in LVR until it has been qualified by an SDR as a legitimate sales opportunity. More qualified leads in the pipeline inevitably translates into more closed deals and revenue down the line.
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LVR shows real-time momentum. Other metrics like revenue growth measure past performance impacted by dozens of variables. LVR hones in on the one thing you can control in real-time – the volume of qualified leads being added to your funnel.
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LVR normalizes for sales cycle length. Revenue only shows the deals that crossed the finish line in a given period. But LVR captures all the opportunities you‘ve created, regardless of when they will ultimately close. This makes it a more consistent predictor across businesses with different sales cycles.
As Aaron Ross and Jason Lemkin explain in their book "From Impossible to Inevitable":
"Qualified Lead Velocity Rate (LVR) is real-time, not lagging, and it clearly predicts your future revenues and growth…LVR is more important strategically than your revenue growth this month or this quarter."
The Revenue Impact of Lead Velocity Rate
To appreciate the concrete impact of lead velocity, let‘s look at some real-world data.
A study by Forrester Consulting found that companies that achieved at least 15% year-over-year growth in LVR saw median revenue growth of 17.4%. In contrast, those with flat or declining LVR only grew revenues by a median of 4.6%.
Shopify is a case in point. From 2012-2015, the ecommerce platform grew revenues by 10X, in large part because it consistently hit 10% month-over-month growth in qualified leads. Even as a public company today, Shopify still credits "strong lead velocity" as a key driver of its results.
For a more granular example, consider two hypothetical SaaS companies, each starting a quarter with 100 qualified leads:
| Month | ACME Co. Leads (5% LVR) | Bluth Co. Leads (15% LVR) |
|---|---|---|
| January | 100 | 100 |
| February | 105 | 115 |
| March | 110 | 132 |
Assuming both companies have a 20% win rate and $12,000 average contract value (ACV), their projected revenue from that quarter‘s leads would be:
- ACME Co: 110 leads 20% win rate $12,000 ACV = $264,000
- Bluth Co: 132 leads 20% win rate $12,000 ACV = $316,800
The 10 percentage point difference in lead velocity translates into 20% higher revenue for Bluth Co. And this gap will only widen each subsequent quarter as the compounding effect of higher LVR kicks in.
How to Calculate Lead Velocity Rate
Now that you understand the power of LVR, let‘s walk through exactly how to calculate it in practice.
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Define what counts as a "qualified lead" for your business. This could be a marketing qualified lead (MQL), sales accepted lead (SAL), or sales qualified lead (SQL). The key is applying a consistent definition based on a clear handoff between marketing and sales.
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Determine your measurement period. Most companies calculate LVR monthly, but you could also track it weekly or quarterly. Stick to the same cadence to compare apples-to-apples over time.
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Tally up your qualified leads for the current and previous period. Let‘s say you‘re measuring LVR for Q2 2024 compared to Q1 2024. You‘d sum up all the qualified leads generated in April, May, and June (Q2) and compare that to January, February, and March (Q1).
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Plug the numbers into the LVR formula. Continuing the example above, imagine your qualified lead counts were:
- Q1 2024: 500 leads
- Q2 2024: 625 leads
Your LVR calculation would be:
(625 – 500) / 500 = 25%
This means your lead velocity grew by an impressive 25% quarter-over-quarter. To convert that into a monthly average, simply divide 25% by 3 months = 8.3% average month-over-month LVR for the quarter.
Benchmarks: What‘s a Good Lead Velocity Rate?
So what‘s a good target to aim for? Broadly speaking, sales experts recommend 8-10% LVR growth month-over-month as a rule of thumb.
In his book "The Sales Acceleration Formula", HubSpot CRO Mark Roberge explains that HubSpot set a goal of 7.5% month-over-month LVR growth in the early days, which added up to more than 100% annualized lead growth.
SaaStr founder Jason Lemkin echoes this advice:
"Once EchoSign hit $1 million in revenue run rate, we set an LVR growth target of 10% per month. Once we hit about $3 million in run rate, we dropped it to 8% growth per month."
That said, your ideal LVR ultimately depends on several factors:
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Average sales cycle. The longer your sales cycle, the more gradually qualified leads will turn into closed revenue. Companies with shorter sales cycles need higher LVRs to achieve the same revenue growth.
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Average contract value (ACV). The higher your ACV, the fewer leads you need to reach your revenue goals. $1M in new pipeline from 10 leads is very different than from 100 leads.
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Revenue growth goals. Are you a startup trying to triple revenue year-over-year or a mature public company aiming for 20% growth? Your lead goals have to align with your revenue goals.
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Sales capacity. Growing leads only helps if you have the sales headcount to work them. Make sure your LVR targets align with rep staffing and productivity.
According to a survey of B2B companies by Vantage Point Performance and the Sales Management Association, the average LVR was 12.3% among firms with less than $25 million in revenue and 8.6% among those with more than $500 million in revenue.
5 Strategies to Improve Lead Velocity Rate
Growing your lead velocity requires continuously optimizing four key areas: lead quality, lead quantity, speed to lead, and sales development performance.
Here are five strategies to boost your LVR on all those fronts:
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Ideal customer profile (ICP). The better you understand your target buyer, the more relevant leads you‘ll attract. Regularly refine your ICP based on data about your best customers – their firmographics, business needs, and behavioral attributes.
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Content marketing. Content is the fuel for your lead generation engine. Invest in educational blog posts, whitepapers, webinars, and videos that address your ICP‘s key challenges. Gate your best content behind landing pages to capture lead information.
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Lead scoring. Not all leads are sales-ready. Use demographic and engagement data to score leads based on their fit and interest. Route only the best leads to your sales team, while nurturing the rest with automated campaigns.
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Tech stack. From conversational marketing chatbots to predictive lead scoring to sales engagement platforms, invest in tools that help you capture, qualify, and convert leads at scale. Make sure your marketing automation and CRM systems are tightly integrated for seamless handoffs.
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SDR enablement. Your sales development reps (SDRs) are the key to keeping LVR high. Arm them with effective scripts, sequences, and skills development opportunities. Set activity quotas for calls, emails, and social touches per day. And align their compensation plans with LVR goals.
Case Study: How Trello Hit 10% LVR for Two Straight Years
Trello, the popular project management software, is a shining example of using LVR as a north star metric.
From 2014-2016, Trello achieved the coveted 10% month-over-month growth in qualified leads for a whopping 24 months in a row. How‘d they do it?
First, the company created an airtight lead handoff between marketing and sales. Marketing was responsible for generating marketing qualified leads (MQLs), and then a business development rep (BDR) team further qualified those into sales qualified leads (SQLs) before passing to quota-carrying account executives.
To scale lead quantity, Trello doubled down on content marketing and SEO. It built a deep library of use case blog posts, template galleries, and integration guides that ranked highly on Google for popular keywords. It also launched a partner program to drive referral leads.
On the lead quality front, Trello was ruthless about only counting true SQLs in its LVR metric. BDRs used a strict checklist to vet each lead for fit, authority, need, and timing. Unqualified leads were sent back to marketing for further nurturing.
This consistent focus on LVR paid off big time. Trello grew from 10 employees and a few thousand users to over 100 employees and 1.1 million daily active users in just two years. The company was acquired by Atlassian for $425 million in 2017.
How to Use LVR to Forecast Revenue
Lead velocity isn‘t just a metric to measure for its own sake. Used properly, LVR can be a powerful tool for forecasting future revenue.
Here‘s a simple way to project revenue from your LVR:
- Take your current month‘s qualified leads
- Multiply by your historical conversion rate from qualified lead to closed deal
- Multiply by your average contract value
- Multiply by the number of months in your average sales cycle
For example, let‘s say your key metrics are:
- 100 qualified leads this month
- 20% lead-to-customer conversion rate
- $25,000 average contract value
- 3 month sales cycle
Your revenue projection would be:
100 leads x 20% conversion x $25,000 ACV x 3 month sales cycle = $1,500,000 in pipeline revenue
Assuming you maintain your historical conversion rates, this pipeline will turn into $1.5 million in recognized revenue over the next quarter as deals close.
You can take this a step further by layering on your LVR goals. Let‘s say you‘re aiming for 10% month-over-month LVR growth. Here‘s how your revenue projection would increase:
| Month | Qualified Leads | Pipeline Revenue |
|---|---|---|
| January | 100 | $1,500,000 |
| February | 110 | $1,650,000 |
| March | 121 | $1,815,000 |
Of course, this is a simplified model. But it illustrates the compounding revenue impact of consistently growing your lead velocity.
Sales and Marketing Alignment
To systematically grow LVR, sales and marketing have to be in lockstep. Both teams need a shared definition of a qualified lead and a seamless handoff process.
Think of your revenue engine like a relay race. Marketing runs the first leg, generating a high volume of engaged leads. But the baton can‘t be dropped in the handoff to sales, who must quickly follow up and qualify those leads.
To keep both teams aligned, try these tactics:
- Establish a service level agreement (SLA) with mutual expectations for lead quantity, quality, and follow-up time.
- Hold regular "smarketing" meetings to review leads, pipeline, and closed deals.
- Create a feedback loop for sales to give input on lead quality and campaign effectiveness.
- Align marketing‘s MQL goals with sales‘ SQL targets.
The more sales and marketing collaborate, the more effectively you can grow LVR.
Final Recommendations
If you take one thing away from this guide, let it be this: Lead velocity rate is the most important metric you probably aren‘t tracking… but should be.
Unlike vanity metrics that make you feel good, LVR has a direct line of sight to revenue. If you can consistently grow lead velocity quarter after quarter, increased sales and market share will follow.
To get started with LVR, follow these steps:
- Define your qualified lead criteria and make sure sales and marketing are aligned.
- Calculate your historical LVR for the last 12 months to set a baseline.
- Set an achievable LVR goal – even 5% growth per month is a great start.
- Execute on the five strategies to improve LVR: refine your ICP, invest in content, implement lead scoring, leverage technology, and enable your SDRs.
- Measure progress monthly and make it a key metric in your sales dashboard.
- Use LVR to create more accurate sales forecasts and capacity plans.
- Celebrate wins and learn from misses. Continuous improvement is key.
At the end of the day, sales is a numbers game. But in the rush to close deals and make quota, it‘s easy to lose sight of the most important number of all: How many quality leads are you adding to the top of your funnel?
By making lead velocity your north star metric, you‘ll have a compass to guide you to consistent, predictable revenue growth. And in uncertain economic times, that‘s the ultimate competitive advantage.
